Summer 2012
Healthy results
Dr. Robert Kent is changing the way health care is delivered
keeping track Expiring tax cuts
focus on Serve, Share & Give
get to know Dirk Ahlbeck
going for gold What makes your business distinct?
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Do you want to grow your customer base? Improve
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profitability? Beat out your competition? The way to
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do it is simple: Stop selling, and start captivating. Advertising guru and motivational speaker Sally Hogshead says companies succeed when they fascinate. This is defined as the ability to irresistibly draw one’s attention. But how can you stand out from the crowd and command interest? It’s about possessing the power to persuade and
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the ability to do it quickly. Consumers’ attention spans have been rapidly shrinking because of the fast-paced, on-demand environment of the Internet. Some reports estimate the average person’s attention span is as short as nine seconds … the same as a goldfish. People are so distracted it leaves you little time to make an impression and hold one’s interest. If you’ve gotten to this sentence, your attention is twice as strong as a fish. Stick with me. Think of your brand. What about you or your company is different? And what about that difference is attractive? Average should never be good enough. And mediocrity must be unacceptable. You can’t be like everyone else. Think of it like falling in love. You have to reveal, share, and continually demonstrate what makes you different from the next guy or gal. Just as a great relationship doesn’t require you to be the best looking, success in business isn’t about having the fanciest product. Oftentimes, you don’t even need to be the best. Great brands are built on the attraction they provide their clients. Customers typically don’t rely on a simple, rational reason — like price — for sticking with a company. Something about the relationship generates loyalty, and that leads to
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their advocacy. Identify what it is that you say or do that people care about. What makes you distinctive, original, or even quirky? Own it. Amplify it. And use it to provide your customers something that evokes a strong reaction. The world — and your business — will not be changed by the people who sort of care, so make the most of your time and uniqueness.
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SS&G WEALTH MANAGEMENT 275 Springside Drive Akron, OH 44333 800-871-0985
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Mark Goldfarb, CPA
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Managing Director Send letters to the editor and story ideas to Solutions@SSandG.com
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SS&G is a founding member of LEA Global, an international professional association of independently owned accounting and consulting firms.
first person Dirk Ahlbeck Title: Managing Director, Des Plaines, Ill. Education: Bachelor’s degree in accounting from Michigan State University Hometown: Park Ridge, Ill. Year I joined SS&G: 2010 (when Ahlbeck & Co. merged with SS&G)
The word that best describes me: Efficient I am a member of: the corporate board of Avenues to Independence, a nonprofit organization serving developmentally disabled adults; the finance committee of my church; and the membership committee of the Illinois Restaurant Association. I’ve been recognized for: our work with our nonprofit clients. The best part about my job: is being a trusted adviser to my clients. The best piece of advice I’ve received: My father often says that when dealing with difficult people, “You can’t be responsible for other people’s behavior.” Book of note on my shelf: “Power Questions: Build Relationships, Win New Business, and Influence Others” by Andrew Sobel and Jerold Panas The biggest challenge I’ve overcome: Being impatient with others If I could change anything in my career: I would have done more traveling after college before starting work in my profession. If I could give one piece of advice to executives: A.J. Pasant, founder of Jackson National Life Insurance Co., talked to a group of us during college and said the six most important words are: “Nothing happens until something is sold.” I did not know what that meant then, but I certainly know what it means now. A great leader is: a person who can get someone to do something without them knowing it.
The greatest invention of the last 10 years: is the iPad, by far. The U.S. Air Force just purchased 20,000 for military use. If I weren’t doing this, I would: be like Burt Lancaster’s character in the movie “Airport.” I would be in charge of Chicago O’Hare International Airport and deal with all of its issues. It never ceases to amaze me that there is so much going on from 4 a.m. until midnight every day of the year. I also like that I am only 15 minutes away from hopping on a plane to go anywhere in the world. I’m most proud of: my children, Emma and Brendan. They put a smile on my face no matter what kind of day I have had. I hope I never: die young. A little-known fact about me: I have not been on a road trip lasting longer than six hours in the past 26 years. I’d rather fly. My next goal is to: integrate the efforts of the downtown Chicago and Des Plaines offices. My favorite place in the world is: Seven Mile Beach on Grand Cayman Island, British West Indies. When I get discouraged, I: turn to Tracy, my spouse. She always has the right answer. My attitude toward change is: to embrace it. Things are always changing — often for the better in the long run.
The business leader I admire most: Dale Carnegie. What was written in his 1936 book, “How to Win Friends and Influence People,” is still applicable today.
I’m inspired by: people who have to overcome a physical challenge.
My business philosophy: When there is a problem, come up with a solution to solve it rather than complain about it.
Success is: having a happy and healthy family, including my new dog, Nellie. j
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industry A tax to grind What expiring Bush-era tax cuts mean for 2013 tax planning
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he U.S. economy appears to be gaining some momentum. And yet, Americans should collectively plan for a little more economic uncertainty as they prepare for the upcoming tax season. In 2013, the country is set to face an across-theboard tax rate increase for the first time in 20 years, says David McClain, a manager in tax at SS&G. “It affects everybody from middle-income families up through high-net-worth individuals, small business owners and everybody in between,” McClain says. “Pretty much any individual who pays income tax is going to end up paying more if nothing happens.” Although the 2010 Tax Relief Act renewed the Bush-era tax cuts and other tax provisions through 2012, Congress has yet to agree on a larger tax bill that would extend them through 2013 or beyond. The probability doesn’t look good that such a bill will pass by the end of the year.
“With it being an election year, the political climate being what it is, and the budget issues that are currently facing Congress, a lot of what we’ve heard is, ‘Don’t expect to see an across-the-board extension of these expiring provisions,’” McClain says. As of now, it’s likely the cuts will be phased out as planned Dec. 31. So it’s time for businesses and individuals to start planning for the potential effects.
to 39.6 percent, and the lowest bracket, 10 percent, will disappear completely — making the new lowest bracket 15 percent. The government will also replace the middle brackets — 25, 28, and 33 percent — with 28, 31, and 36 percent brackets, respectively. Americans in the middle will lose the benefit of the graduated tax system, meaning they’ll pay more as well, says Steve Magovac, associate director in tax for SS&G. Because the alternative minimum tax is not indexed for inflation, more middle-income individuals could also be subject to alternative minimum tax starting in 2013. Currently, taxpayers pay the greater of regular tax or AMT, where the AMT rate is 28 cents on a dollar. The AMT tax allows no deduction for personal exemptions or for the standard deduction. In addition, the 40 percent of taxpayers benefiting from the marriage penalty relief provision will see this measure expire in 2013, with limitations on itemized deductions and personal exemptions resuming Jan. 1. Their standard deduction — currently 200 percent the amount of unmarried filers — would return to approximately 167 percent.
Everybody hurts
More money, more problems
If the Bush-era tax cuts expire in 2013, the subsequent hike in personal income taxes will affect individuals at all places in the tax spectrum. First, the highest income tax rate will jump from 35
All of these potential changes make it difficult for taxpayers to determine their tax liability going into 2013. But high-income individuals will get hit particularly hard by the expiration of the tax cuts.
“Pretty much any individual that pays income tax is going to end up paying more if nothing happens.” — David McClain
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Logically, if individual tax rates rise, a higher-income person would be taxed at a higher rate. But high-networth individuals also tend to invest money in areas that pay dividends and buying and selling stocks that generate capital gains. Currently, both capital gains and qualified dividends are taxed at 15 percent. But if Bush-era cuts expire, taxes on capital gains will jump to 20 cents on the dollar, and qualified dividends will coincide with a person’s income tax rate. “Now, all of a sudden, your capital gains rate could go from 15 to 20 percent and your dividend income tax rate can go from 15 all the way up to 39.6 percent if you’re in the highest tax bracket,” McClain says. Furthermore, some wealthy individuals would be subject to other taxes that wouldn’t affect the typical taxpayer. In 2013, the lifetime estate tax exemption will fall from $5.12 million to $1 million. Also, a 3.8 percent Medicare tax on all net investment income kicks in Jan. 1 as part of Patient Protection and Affordable Care Act. The tax applies to interest, dividends, royalty income, rents, and capital gains for individuals with income exceeding $200,000, or $250,000 for married couples. So if you’re a high-net-worth individual who is married and has $300,000 in qualified dividend income, your 2013 tax rate would be 39.6 percent, plus a 3.8 percent Medicare surtax. These higher rates could not only significantly affect wealthy individuals but also businesses. If stockholders pay significantly more on dividends in 2013, it could damage certain investor groups funding the economic turnaround, says Floyd Trouten, director in tax at SS&G. “Now the group that probably takes the greater risk has to think twice because along the way, they have to pay a much higher rate as they get paid on their return on investments,” Trouten says. In 2013, businesses are seeing the loss of accelerated depreciation deductions, which enable them to expense many assets immediately that would otherwise be capitalized and depreciated over five, seven or 15 years. Section 168(k) bonus depreciation allowed taxpayers to immediately expense 100 percent of certain new property in 2011. This benefit was cut to 50 percent in 2012 and will be gone completely in 2013. Section 179 expensing has also allowed companies to expense certain property up to $500,000 as long as they didn’t buy more than $2 million worth. In 2012, the Section 179 expensing will also drop to a maximum of $25,000. “Those are two big provisions that have really spurred businesses to go out and invest in new equipment and put money back in the economy,” McClain says.
“If you’re a very wealthy family, either you use it or you lose it.” — Floyd Trouten
Navigating the ‘what ifs’ Taxpayers may have to wait for the outcome of November elections to gain more certainty about their financial future. But that doesn’t mean they should wait to talk with their certified public accountants or tax advisers to discuss potential strategies for the end of the year. “You need to plan for the worst-case scenario, which is everything expires and nothing gets patched,” McClain says. “You need to plan for what you realistically think may happen, and then you want to run a couple of different scenarios of ‘what ifs’ in between those.” Businesses should take a hard look at current cash flow and projected purchasing for 2013 to determine what makes sense. They may decide to accelerate revenue or take advantage of the low capital gains rate in 2012. Business owners can also look for incentive programs to help fund future investment in growth and expansion. As for high net worth individuals, those sitting on a lot of unrealized capital gains should think about selling their stocks before Jan. 1 to lock in a 15 percent rate. Similarly, wealthy individuals with large estates should consider transferring assets now to benefit from the $5 million estate tax exemption. “If you’re a very wealthy family, either you use it or you lose it,” Trouten says. Like businesses, individual taxpayers can start by examining their cash flow and projected investments to identify areas for prospective savings. To avoid paying AMT next year, certain individuals may want to accelerate income into 2012. Or, by postponing deductions they’d normally take at the end of the year, such as charitable or real estate taxes, they could make more money off the same dollar deduction in 2013. The critical piece is to make these decisions with all of your facts. “You certainly don’t want to have the tax tail wag the dog,” McClain says. “You don’t want to liquidate a portfolio and then sit there and not earn any income on that either. That’s why it’s important to start early and look at all of the different scenarios.” j
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case study
Dr. Robert Kent, president and CEO, Western Reserve Hospital Partners
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Healthy
results How a new way of thinking at a local hospital is changing the way health care is delivered
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r. Robert Kent believes health care can be delivered in much better ways than traditionally provided by most hospitals. And he’s not the only doctor who thinks so. Not only does he believe hospitals can improve patient care services, but he also is certain they can streamline the way they run their facilities. All it takes is some different thinking. Kent says most hospitals focus strictly on sick patients and increasing revenue, are slow to implement necessary changes, and don’t provide a consistent experience. This prompted Kent to travel the country, exploring the opportunities and benefits of physician-owned hospitals. “I spent nearly two years learning what things physician hospitals did well, the things they did poorly and which ones were successful,” Kent says. With his newfound knowledge, he returned to the area and engaged physicians with a similar mindset, forming Western Reserve Hospital Partners, a group of 215 physician investors who are majority owners of Summa Western Reserve Hospital. Kent serves as the group’s president and CEO. The hospital, a partnership with the Summa Health System and the only physicianowned, for-profit, full-service hospital in Northeast Ohio, is patient-centered and nurtures an environment where doctors have greater input to create a lean organization. “The prime focus is making sure we are not acting like a traditional hospital,” Kent says. “If we start acting like a traditional hospital, we are in trouble.” This attitude has made Western Reserve Hospital one of the region’s most dynamic organizations and is changing how physicians think about health care delivery.
Photo: Jeff Downie
Don’t think like a hospital Kent created Western Reserve Hospital Partners and garnered support from hundreds of other physicians because they believed they could run a hospital better than many in operation today. Kent’s biggest challenge now is to maintain everyone’s focus on innovation. “We’re a physician organization that happens to manage and operate a hospital,” Kent says. “It’s not a hospital trying to figure out how to manage doctors.” One who shares Kent’s attitude toward health care delivery is Dr. Eric Espinal, chairman of the department of surgery at WRH. “Our vision is that our hospital, but more importantly the system that revolves around the hospital, is very focused on providing very high-quality care to patients in a very special way,”
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Dr. Eric Espinal (L), chairman of the department of surgery, with Dr. Charles Fuenning, chief medical officer at Western Reserve Hospital.
literally make sure the care is done before the patient gets here, eliminating — if possible — the need for the person to come to the hospital. That’s just not how traditional hospitals usually think.”
Espinal says. “As we subscribed to other physicians and got others to join us, that was always what everyone wanted to focus on. There are many great hospitals in Northeastern Ohio, but we thought we could change in a positive fashion the way care was delivered.” Kent strives to make sure physicians, rather than committees, make decisions and do what’s right for patients. “At a big organization, the message and vision can get lost, and the organization can’t move at the speed it needs,” Kent says. “We are in a very dynamic market here in Northeast Ohio with a strong institution like the Cleveland Clinic. We need to think faster and smarter than an organization like that. We can’t outspend them, nor can we outbid them, so it’s important we are centered on the patient and all of our decisions for the patient are physician-driven.” To make this work, the physicians constantly communicate with one question in mind — what is best for patients? “It’s very easy to fall back into your old ways of thinking,” says Dr. Charles Fuenning, chief medical officer at WRH. “You have to be so cognizant of that. It’s really trying to change some of the paradigms. Instead of the old tried-and-true methods, we’re trying to focus on issues from a slightly different perspective, moving much quicker and faster.” As health care continues to change, hospitals cost the most in the health care equation. Hospitals must get away from the approach of strictly taking care of sick people and, instead, make sure the care is more encompassing, Kent says. “With hospitals, sometimes the failure is in the care,” Kent says. “It’s not just a revenue situation. The change in mindset is how we make people healthier and not just keep them out of the hospital but take care of them via a process of continuing care. In a hospital, you think about revenue and how that is tied to more sick people. ‘How do you get more sick people here?’ is often the question. How do you get more procedures, more widgets, so to speak? We’re trying to change the mindset that this is not about revenue and widgets. This is about how we can
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As in any type of business, the success of an organization starts and ends with the people. Kent made sure physicians who invested in and were coming to practice at the hospital were the right fit. “We were extremely selective on making sure the people who are part of our organization have the same way of thinking from the get-go. We wanted people who shared the same vision of how we wanted to deliver care. That led to the creation of a set of credentials and standards for people to practice here that are among the highest in the region.” At WRH, the medical staff must participate in an annual patient satisfaction training program, and individual patient satisfaction scores are monitored and considered in determining whether a physician is given a reappointment to the staff. Medical staff must either be board certified at the time of appointment or obtain certification within five years. Practitioners also must sign a code of conduct and abide by it, a practice that accrediting bodies such as The Joint Commission have just recently recommended. Not every physician was interested in such a selective process, but it helped create a staff that believes in the goals. “It was probably one of our biggest hurdles but also one of our biggest successes because our medical staff now is so completely engaged in our vision. Most hospitals can’t say that.” Not only does WRH boast a top-notch staff of physicians, but being physician-owned allows the hospital to make quick, smart decisions without the usual influences most hospitals have to deal with. “As physicians, we understand the needs of patients as well as what is a legitimate need in equipment purchasing decisions,” Kent says. “Our experience as health care providers also gives us insight into launching new initiatives or programs and determining which programs are efficient and work well. Having that driven by physicians, there’s no rhetoric about in-between steps or talk about hiring consultants because this is what we do every day.” By involving physicians in the process of operating the hospital, the group knows what is necessary to be efficient and what patients are asking for, Espinal says. “I think the key to success is being able to respond to the needs of our patients. That can’t always be done in a large hospital system that has lots of committees that
Photo: Ken Love
Surround yourself with great people
www.westernreservehospital.org
have to approve changes. If we see a need, we can move very quickly toward finding a solution.” WRH’s leaders are still practicing physicians and understand when certain changes are needed. “At our hospital, when a problem arises, you know the physicians who are leaders understand that this really is a problem,” Espinal says. “If you see something happening with a patient experience and you can talk to a doctor who can effect a change, it matters. There isn’t a need for a meeting. You don’t have to spend time convincing someone that something needs done. You can just show the situation, and the physicians in leadership roles understand.”
Deliver a great experience While WRH is changing many aspects of health care delivery for the better, some negative perception remains toward physician-owned hospitals because most are specialty-based institutions. “About 95 percent of physician-owned hospitals across the country are specialty-based,” Kent says. “Most are not full-service hospitals. They do not have emergency departments or intensive care units but instead focus on one or two specialties, such as cardiology or orthopedicrelated care. We had to fight a lot of myths that tie physician ownership to specialty-only hospitals. I try to reiterate that this is not a specialty hospital. This is a full-service, community-based hospital that happens to be owned by physicians. Right now, in our market, we have the highest satisfaction rating of any hospital. That’s not by happenstance. That’s by making sure the patient is first.” The patient satisfaction survey conducted earlier this year by the Hospital Consumer Assessment of Health Providers and Systems showed WRH was ahead of the competition in overall patient satisfaction, with 65 percent rating WRH a 9 or 10. Its nearest competitors, Robinson Memorial, Wadsworth Rittman, Barberton Hospital and Akron City Hospital, had 50 percent or fewer respondents rating them a 9 or 10. WRH puts its patients first in every decision it makes and has placed an emphasis on wellness and the patient experience. For example, the hospital has launched initiatives such as the Lung Health Program for early detection of lung cancer. “We still have a lot of potential opportunity to cure more patients by finding the disease at an earlier stage,” Espinal says. “This sounds like common sense, but many, many hospital systems have been challenged at how to do this. One of the challenges is insurance wouldn’t pay for it. That was really a holdup, but we said, ‘This is something the community needs, and we’re just going to do it.’”
The typical approach to medicine is to wait for a patient to get sick and then focus on getting him or her better. Many hospitals focus on the number of pneumonias or heart attacks that need taking care of. WRH is looking at what can be done to keep patients healthy and out of the hospital. “Treating the sick is always going to be part of what we do, but I believe medicine in general and what patients appear to want is more of a focus on wellness,” Espinal says. “People find it hard to believe we’re looking at those factors,” Kent says. “As health care continues to change, there will be an increased focus on remaining cost-effective. We want to be ahead of the curve by getting the community healthier rather than worrying about treating illness. That is where health care is going and where it should be.”
“We’re trying to change the mindset that this is not about revenue and widgets.” — Dr. Kent, President and CEO, Western Reserve Hospital Partners
While this mentality got many doctors involved with the partnership, it has been the overall patient-care experience WRH delivers that made the difference for other physicians. “Before Western Reserve was formed, a loved one of mine underwent a surgery at a local hospital,” Fuenning says. “I knew the hospital, surgeon, and anesthesiologist. The surgery went well, and my loved one had a great patient experience. “Not too long after that, a very good friend needed the same surgery, so I recommended the same hospital, surgeon, and anesthesiologist. Though the surgery was again successful, my friend had a completely different experience and level of patient satisfaction. The question for me was; why? In addition to excellent health care, everybody should have that same good experience. I knew that if I ever had the opportunity to make sure that could happen — that I could positively influence a great experience for every patient — I would. So when the opportunity with Western Reserve came up, I knew this was what I needed to do.” j How to Reach: Summa Western Reserve Hospital, 330-971-7000 or www.westernreservehospital.org
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focus on Giving back The benefits of a community service program — and how your company can create one
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companywide community service program boosts morale, fosters teamwork and — best of all — helps those in need. The employees of SS&G, Inc. understand this as the firm recently structured a community service initiative. SS&G’s employee-led Personnel Committee Advisory Board created the Serve, Share & Give (SS&G) program, which provides designated outings for employees to donate time to a specific organization. While the company had participated in community service in the past, it did not have a formal, organized means for doing so. “Our professionals wanted to have an organized way to volunteer together,” says Rebecca Osborne, director of human resources. “Right now, we’re focused on helping our nonprofit clients in our individual markets.” The Cleveland program kicked off June 1 with 17 employees spending four hours working in the kitchen of the Cleveland Foodbank, making lunches, dinners, and snacks for the many area agencies that utilize its services. SS&G also hosted two other trips to the organization and ran a food drive in its office. “Many of our partners went out with junior members of the staff and worked side by side,” Osborne says. “From an HR perspective, the program develops team building and camaraderie.” Teresa Schaffer, director of assurance services and nonprofit group lead at SS&G, agrees, saying the program has given employees new perspectives. “We understand the numbers of an organization, but many of us — particularly our younger staff — may not have experienced what it’s like on the inside,” she says. “This program has allowed us a great opportunity to sort of walk a mile in our clients’ shoes, helping us better understand their missions and improve our service to these valuable nonprofits.”
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Fresh from starting its own community service program, SS&G has tips for others interested in starting one: Pilot your program. SS&G started the program at one location with a limited number of employees before expanding it to the larger organization. Doing this allowed the company to work out problems on a small scale before going companywide. Offer an incentive. SS&G sent out an announcement to employees outlining the program details. The volunteer work was done during work hours, so employees were paid for their time. They were also allowed to wear jeans for the day, even when they came back to the office. Work with your chosen organization. SS&G has a large number of employees, so it asked how many the Cleveland Foodbank could accommodate at one time. This led to SS&G breaking the project up into three separate days to avoid showing up with a large group of people only to find there weren’t enough jobs available for them. Involve your employees. The idea for SS&G’s program came from its employees, who were instrumental in getting it up and running. Employee involvement ramps up excitement as they feel they have played a critical role in the project. Offer several opportunities. SS&G offered three separate days for involvement and made sure they were outside peak deadlines. This allowed employees to choose which day worked best for them. Choose an organization that aligns with your company. SS&G partnered with clients. Discover where your strengths lie and offer those to an organization. As a business consulting firm, for example, you can offer to help a company with its internal controls on a volunteer basis. Be organized. SS&G used Microsoft SharePoint for its employees to sign up for the program so it knew how many it needed and who was going. j
the last word with Gary Shamis
Tax Armageddon It is coming — beware!
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ajor increases in federal taxes are right around the corner. Jan. 1 will be here before we know it. Of course, things can change quickly, but in a presidential election year, the chances to change course are significantly reduced. What lies ahead is a perfect storm of tax law changes — now in effect — that are set to expire. Included are the Bush-era tax tables, the temporary estate and gift tax rules, and many tax strategies used to weather the recession. If the Bush tax tables expire, individuals will revert back to prior tax levels. The highest tax bracket moves from 35 percent to 39.6 percent — about a 15 percent increase. The change in the estate and gift tax is far more profound. The amount a married couple may gift goes from $10.2 million to $2 million, an 80 percent decrease. And estate taxes go from 35 percent to 55 percent, an approximate 70 percent increase. The tax strategies that are disappearing relate to the expiration of credits, reduction in accelerated depreciation, and reinstituting full Social Security rates on earned income. In addition, effects of health care reform add additional taxes to unearned income. This really adds up. I am not talking about a few percentage points. I am talking about major tax increases.
“What lies ahead is a perfect storm of tax law changes.”
We all need to take note and plan accordingly. We must carefully consider growth plans for our businesses and be sure to consider the risks we are taking related to the increased tax burden. Planning is essential. This must include both business and individual planning to optimize tax strategies. And perhaps most important is to carefully consider gifting and estate options as the window closes on this unprecedented opportunity to pass along wealth. The professionals at SS&G are here to help you plan for these significant changes. j
Additional Resources Read more on page 4 about potential tax changes, or visit SSandG.com/resources for helpful tools, including tax calculators, planning guides, and tax tips.
Looking for answers to your specific tax questions? Contact SS&G’s tax professionals at 800-869-1834 or info@SSandG.com.
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